By Jennifer Yousfi
President George Bush yesterday (Monday) urged congressional legislators to put aside differences and work together for a speedy passage of a bill that would pledge $700 billion in taxpayer money to fight the current financial crisis – the largest bailout in U.S. history.
"[T]here will be differences over some details, and we will have to work through them. That is an understandable part of the policy making process," President Bush said in a statement released yesterday. "[T]he whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector, and retirement accounts."
However, Democrats seemed reluctant to rubber stamp a bill that would give Treasury Secretary Henry Paulson such far-reaching powers with almost no legislative oversight.
"Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers’ interests," House Speaker Nancy Pelosi said. According to The New York Times. Pelosi also said that the Bush administration’s proposal did "not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation."
"We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome," Pelosi added.
Even some Republicans balked at the high price tag for the proposed bailout.
"When we add an additional trillion dollars to the debt, the burden of the taxpayer, sooner or later there's got to be a reckoning," said Sen. Richard Shelby, R-Ala., and a ranking member on the Senate Banking Committee, CNNMoney.com reported. "This is the mother of all bailouts."
Democrats put forth their own version of the government bailout bill on Monday, adding some important stipulations to Paulson’s plan, which was submitted over the weekend.
The Democrats’ version of the bill includes several additional provisions including:
- Setting a cap on executive compensation for companies involved in the program.
- Granting authority to bankruptcy courts to modify the terms of primary mortgages for homeowners facing foreclosure.
- Organizing a new "Office of Financial Stability" to oversee the program.
- Increasing frequency of status reports to Congress to monthly from a semiannual basis.
"We need to offer some assurance to the American taxpayer that Congress is watching," Sen. Christopher Dodd, D-Conn., and the chairman of the Senate Banking Committee, told reporters on Sunday. "One of the things that got us into this mess was the lack of accountability and the lack of oversight that was occurring, and I don’t think we want to repeat those mistakes with a program of this magnitude."
While Democrats were busy making modifications to the plan, Paulson and the Treasury Department had a few changes of their own.
Paulson sought to expand the types of securities available for purchase, no longer requiring the assets be mortgage-related. In addition, he wants foreign firms to be eligible to participate in the program at the Treasury Department’s discretion.
"This is not a position where I like to see the taxpayer, but it is far better than the alternative," Paulson said in an interview on NBC's "Meet the Press."
It is the government’s position that without this costly and unprecedented intervention, the economy could face a collapse akin to the Great Depression.
Thefinance ministers and central bank governors released a joint statement yesterday pledging support for the global financial system, Reuters reported.
"Major central banks have been coordinating to address liquidity pressures in funding markets, which has been critical in addressing disruptions in global financial markets," the G7 said in the statement. "Several regulators have taken decisive actions to combat market manipulation and stabilize financial markets, including a temporary ban on short selling of financial stocks."
But speaking before reporters in Berlin, German Finance Minister Peer Steinbrueck said that the remaining G7 countries – Canada, Britain, France, Germany, Italy and Japan – do not have any comparable plans to the proposed $700 billion U.S. bailout package to support the ailing financial sector.
[Editor’s Note: In other bailout-related news yesterday, shares of American International Group Inc. (AIG) soared as much as 43% – and closed 23% higher – on speculation that quick asset sales will allow the insurance giant to repay an emergency bailout loan and evade the clutches of the U.S. government, Reuters reported. The shares have gained ground for three straight days. For an inside look at why AIG collapsed by Contributing Editor R. Shah Gilani, a former hedge-fund manager, elsewhere in Money Morning. It’s a story you’ll read nowhere else.]
News and Related Story Links:
Congress scrambles on rescue bill
- The New York Times:
Bush Urges Democrats to Act Quickly on Bailout Plan
- Money Morning:
Government Plan to Stabilize U.S. Financial Markets Has a $700 Billion Price Tag.
AIG shares jump on report of shareholder plan.